Gray Financial Group, Inc. v. U.S. Securities and Exchange Commission

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-12831
________________________
D.C. Docket No. 1:15-cv-01801-LMM
CHARLES L. HILL, JR.,
Plaintiff - Appellee,
versus
SECURITIES AND EXCHANGE COMMISSION,
Defendant - Appellant.
________________________
No. 15-13738
________________________
D.C. Docket No. 1:15-cv-00492-LMM
GRAY FINANCIAL GROUP, INC.,
LAURENCE O. GRAY,
ROBERT C. HUBBARD, IV,
Plaintiffs - Appellees,
versus
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U.S. SECURITIES AND EXCHANGE COMMISSION,
Defendant - Appellant.
________________________
Appeals from the United States District Court
for the Northern District of Georgia
________________________
(June 17, 2016)
Before ED CARNES, Chief Judge, JILL PRYOR and RIPPLE, * Circuit Judges.
JILL PRYOR, Circuit Judge:
Congress authorized the Securities and Exchange Commission (“SEC” or
the “Commission”) to bring civil actions to enforce violations of the Securities
Exchange Act of 1934 (the “Exchange Act”) and regulations promulgated
thereunder. The Commission is empowered to bring such an action either in
federal district court or in an administrative proceeding before the Commission.
See 15 U.S.C. §§ 78u(d), 78u-1, 78u-2, 78u-3. An SEC administrative
enforcement action culminates in a final order of the Commission, which in turn is
reviewable exclusively by the appropriate federal court of appeals. 15 U.S.C.
§ 78y.
*
Honorable Kenneth F. Ripple, United States Circuit Judge for the Seventh Circuit,
sitting by designation.
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The issue presented in this consolidated appeal is whether respondents in an
SEC administrative enforcement action can bypass the Exchange Act’s review
scheme by filing a collateral lawsuit in federal district court challenging the
administrative proceeding on constitutional grounds. In both now-consolidated
cases, the district court held that it had jurisdiction to entertain such challenges.
The court further concluded that at least one of the constitutional claims presented
was substantially likely to succeed on the merits. To avoid what it determined
would be irreparable harm, the district court enjoined the administrative
proceedings. The Commission appealed.
After consideration of the parties’ briefs and with the benefit of oral
argument, we conclude that the district court lacked jurisdiction over the
respondents’ collateral attacks. We find it “fairly discernible” from the review
scheme provided in 15 U.S.C. § 78y that Congress intended the respondents’
claims to be resolved first in the administrative forum, not the district court, and
then, if necessary, on appeal to the appropriate federal court of appeals. Thunder
Basin Coal Co. v. Reich, 510 U.S. 200, 207 (1994) (internal quotation marks
omitted). We see no indication that Congress intended to exempt the type of
claims the respondents raise here from the review process it created. See id.; Elgin
v. Dep’t of Treasury, 132 S. Ct. 2126, 2136-40 (2012). Accordingly, we vacate the
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district court’s preliminary injunction orders and remand with instructions to
dismiss the actions for lack of jurisdiction.
I. BACKGROUND
A. SEC Administrative Proceedings and Judicial Review
SEC administrative actions differ from cases brought in federal district court
in several respects. The administrative action begins when the Commission serves
the respondent with an Order Instituting Proceedings (“OIP”). The Commission
then presides over the action, but it typically delegates review to an Administrative
Law Judge (“ALJ”). See 15 U.S.C. § 78d-1(a)-(b); 17 C.F.R. § 201.110. Unlike
an action brought in federal court, in a proceeding before the Commission the
Federal Rules of Civil Procedure and Evidence do not apply, and the respondent
does not enjoy the right to a jury trial. Instead, the SEC’s Rules of Practice, 17
C.F.R. § 201.100 et seq., govern administrative proceedings. Among other
differences, the Rules of Practice provide for more limited discovery. For
example, the Rules of Practice allow the taking of depositions at the Commission’s
discretion, only upon a finding that the prospective witnesses will be unavailable to
testify at the hearing. Id. §§ 201.233(b), 201.234(a). The Rules of Practice also do
not provide for routine document production, instead requiring parties to request
that the ALJ issue subpoenas. See id. § 201.232. Administrative actions proceed
relatively quickly along fixed timelines set by the rules. See id. § 201.360(a)(2).
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When the Commission delegates review to an ALJ, the ALJ holds an
evidentiary hearing and then renders an initial decision with factual findings and
conclusions of law. Id. § 201.360(a)(1), (b). Either party may appeal the initial
decision to the Commission, id. § 201.410, or the Commission may review it on its
own initiative. Id. § 201.411(c). The Commission’s review authority is broad.
“[It] may affirm, reverse, modify, set aside or remand for further proceedings, in
whole or in part, an initial decision by a hearing officer and may make any findings
or conclusions that in its judgment are proper and on the basis of the record.” Id.
§ 201.411(a). Conversely, if there is no appeal to the Commission, and the
Commission declines to exercise its right to review sua sponte, the ALJ’s initial
decision becomes the final decision of the Commission for all purposes. 15 U.S.C.
§ 78d-1(c). Regardless of whether the initial decision is appealed, the
administrative process culminates in a final order of the Commission.
The aggrieved party may then seek review in the United States Court of
Appeals either for the circuit in which she resides or has her principal place of
business or for the District of Columbia Circuit. 15 U.S.C. § 78y(a)(1). The
aggrieved party may request that the Commission stay enforcement of its order
pending judicial review. 17 C.F.R. § 201.401. Section 78y then provides a
detailed scheme for appellate court review of final Commission orders.
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The process of obtaining judicial review begins with the filing of a petition
in the court of appeals that triggers the court’s jurisdiction. 15 U.S.C. § 78y(a)(1),
(3). Upon the filing of the record in the court of appeals, the court’s jurisdiction
becomes exclusive. Id. § 78y(a)(3). Although other provisions of the Exchange
Act provide limited district court jurisdiction over some types of securities-related
claims, 1 the Act contains no express authorization for district court review of a
final Commission order.
Section 78y then details how the court of appeals reviews a final order of the
Commission. The statute grants the reviewing court broad authority “to affirm or
modify and enforce or to set aside the [final Commission] order in whole or in
part.” Id. § 78y(a)(3). The reviewing court must accept the Commission’s factual
findings that are supported by substantial evidence, but, if appropriate, the court
may remand to the Commission for additional fact finding. Id. § 78y(a)(4)-(5).
The statute prohibits the reviewing court from considering a newly-raised
objection to a final Commission order unless there was “reasonable ground” for
failing to raise the objection first before the Commission. Id. § 78y(c)(1). The
statute generally authorizes the reviewing court to stay enforcement of the
1
See, e.g., id. §§ 78u(d), 78u-1, and 78u-3 (authorizing the Commission to seek, in
federal district court, injunctive relief, civil penalties, or a temporary escrow order).
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Commission’s order pending judicial review “to the extent necessary to prevent
irreparable injury.” Id. § 78y(c)(2).
B. Factual Background
1. Charles L. Hill, Jr.
The respondent in the first case in this consolidated appeal is Charles L. Hill,
Jr., a real estate developer in Georgia who is not registered with the SEC. In June
and early July, 2011, Mr. Hill purchased several thousand shares of stock in a
company called Radiant Systems, Inc. (“Radiant”). On July 11, 2011, after the
markets closed, Radiant announced a merger agreement with NCR Corporation.
The next day, Mr. Hill sold all of his Radiant shares, profiting in the amount of
approximately $744,000. Mr. Hill maintained that he was unaware of the merger
before its public announcement. Nonetheless, in February 2015, after a two-year
investigation in which Mr. Hill cooperated fully with the SEC, the Commission
served him with an OIP. The SEC sought a cease and desist order, a civil penalty,
and disgorgement, alleging that Mr. Hill unlawfully profited from non-public
information.
The ALJ scheduled a hearing on the OIP for June 15, 2015. In the
meantime, Mr. Hill filed two motions for summary disposition, the first
challenging the merits of the claims against him and the second raising as
affirmative defenses constitutional arguments going to the heart of the
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administrative process itself. Specifically, in the second motion Mr. Hill argued
that (1) the administrative proceeding violates the removal protections of Article II
of the United States Constitution because ALJs are protected by two layers of
tenure, (2) administrative enforcement actions before an ALJ violate the non-
delegation doctrine under Article I of the Constitution, and (3) the grant of
discretion to the Commission to bring this action in an administrative forum
violates his Seventh Amendment right to a jury trial. In separate orders, the ALJ
denied both motions. As regards the constitutional issues, the ALJ concluded that
he lacked authority to rule on the constitutionality of a particular provision of the
Exchange Act and thus could not resolve Mr. Hill’s second and third arguments.
The ALJ also expressed doubt that he had the authority to reach Mr. Hill’s first
argument, but nonetheless rejected it on the merits.
Five days after the ALJ issued his order on Mr. Hill’s constitutional
challenges, Mr. Hill filed in federal district court a complaint and motion for a
temporary restraining order seeking to enjoin the SEC proceedings. Mr. Hill raised
the same constitutional arguments in the district court that he had raised before the
ALJ and, in an amended complaint, added an additional claim under the
Appointments Clause of Article II of the Constitution. This new claim asserted
that, as constitutional inferior officers, the ALJs must be appointed by the
President, department heads, or courts of law. Because the SEC conceded that
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ALJs are not appointed in that manner, Mr. Hill contended that the appointment of
the ALJ in his case was unconstitutional. The SEC countered that the district court
lacked jurisdiction over these claims because Congress designated the
administrative forum and appeal procedure of § 78y as the exclusive avenue for
deciding them. The SEC also disputed the merits of Mr. Hill’s claims.
After oral argument, the district court issued a thorough order rejecting the
SEC’s jurisdictional argument and holding that the Commission’s ALJs were
inferior officers subject to the Appointments Clause. Because the ALJ was not
appointed by the President, department heads, or courts of law, the district court
held, the ALJ’s appointment likely was unconstitutional.2 On this basis, the court
granted Mr. Hill’s motion for a temporary restraining order. Hill v. SEC, 114 F.
Supp. 3d 1297, 1320 (N.D. Ga. 2015). The Commission appealed.
2. The Gray Respondents
The second case in this consolidated appeal was brought by Gray Financial
Group, Inc. (“Gray Financial”), its founder and principal Laurence O. Gray, and its
Co-Chief Executive Officer Robert C. Hubbard (collectively the “Gray
respondents”). Gray Financial is an investment advisory firm registered with the
SEC and the States of Georgia and Michigan. The firm provides financial
2
The court declined to reach whether the ALJ’s two-layer tenure system violated Article
II’s removal protections and rejected Mr. Hill’s remaining arguments.
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consulting services to a variety of public and private entities. In August 2013, the
Commission began investigating whether Gray Financial complied with the
Georgia Public Retirement Systems Investment Authority Law (“Georgia Pension
Law”), O.C.G.A. § 47-20-87. After about a year, the SEC reached a preliminary
conclusion that the Gray respondents had violated federal securities laws by
offering an investment fund not in compliance with the Georgia Pension Law. The
SEC urged the Gray respondents to settle or else they would risk an enforcement
action brought in an administrative proceeding.
Based on the SEC’s threat, in February 2015 the Gray respondents filed a
complaint in federal district court seeking to enjoin the impending SEC
administrative proceeding and requesting a declaratory judgment that the dual
layer of tenure for SEC ALJs violates the removal protections of Article II. In
May 2015, the Commission served the Gray respondents with an OIP, initiating an
administrative enforcement action against them. The Gray respondents then filed
an amended complaint, adding the allegation that the appointments process for
SEC ALJs also violates Article II. Then, on June 15, 2015, the Gray respondents
filed a motion for preliminary injunction.
After oral argument, the district court—with the same judge presiding as in
Mr. Hill’s case—again concluded that it had subject matter jurisdiction and that the
hiring of SEC ALJs violated the Appointments Clause because the ALJs were
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inferior officers under the Constitution. The district court thus granted the Gray
respondents’ motion for a preliminary injunction. Gray Fin. Grp., Inc. v. SEC, No.
1:15-cv-0492-LMM, 2015 WL 10579873, at *16 (N.D. Ga. Aug. 4, 2015). The
Commission appealed. Upon the respondents-appellees’ consent motion, we
consolidated the Commission’s two appeals.
II. ANALYSIS
We review the district court’s determination of subject matter jurisdiction de
novo. Doe v. FAA, 432 F.3d 1259, 1261 (11th Cir. 2005). Federal district courts
generally have jurisdiction over claims raising constitutional challenges that seek
declaratory and injunctive relief. See 28 U.S.C. §§ 1331, 2201. Congress may
allocate initial review of such claims to an administrative body, however. See
Thunder Basin, 510 U.S. at 207. To determine whether Congress has done so, we
first decide whether its intent to preclude initial review in the district court is
“fairly discernible in the statutory scheme.” Id. (internal quotation marks omitted);
see also Elgin, 132 S. Ct. at 2133-33. We then ask whether the litigants’ “claims
are of the type Congress intended to be reviewed within this statutory structure.”
Thunder Basin, 510 U.S. at 212; accord Elgin, 132 S. Ct. at 2136-40. The second
part of our analysis focuses on whether the litigant’s claims will receive
meaningful judicial review within the statutory structure. See Thunder Basin, 510
U.S. at 212-14; Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S.
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477, 490-91 (2010). We also consider whether “agency expertise could be brought
to bear on the . . . questions presented” and the extent to which the litigants’ claims
are “wholly collateral to [the] statute’s review provisions.” Thunder Basin, 510
U.S. at 212, 214-15 (alteration adopted and internal quotation marks omitted).
The Supreme Court applied this framework in three cases that guide our
analysis here. In the first, Thunder Basin Coal Company v. Reich, the Court held
that a statutory review procedure applicable to regulations promulgated under the
Federal Mine Safety and Health Amendments Act of 1977, 30 U.S.C. § 801 et seq.
(the “Mine Act”), which is nearly identical to the review procedure under the
Exchange Act at issue here, precluded preenforcement judicial review in the
district court of a constitutional challenge to a Mine Act regulation. Thunder
Basin, 510 U.S. at 218. The Court reached a contrary conclusion in Free
Enterprise Fund v. Public Company Accounting Oversight Board, however. 561
U.S. 477. There, the Supreme Court held that 15 U.S.C. § 78y, the same statutory
review procedure at issue in this case, did not clearly indicate Congressional intent
to preclude initial review in the district court of a challenge to the existence of the
Public Company Accounting Oversight Board (the “PCAOB”), a private nonprofit
corporation under the SEC’s oversight, whose actions do not necessarily result in a
final Commission order or rule. Id. at 489-91. And finally, in Elgin v. Department
of the Treasury, the Court held that it was fairly discernible from the review
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process in the Civil Service Reform Act of 1978 (“CSRA”), 5 U.S.C. § 1101 et
seq., that Congress intended to preclude district court jurisdiction over a
constitutional challenge to a statute authorizing the termination of federal
employees who failed to register for the Selective Service. 132 S. Ct. at 2140.
Applying the Thunder Basin two-part framework based on our reading of
these three Supreme Court cases, discussed in more detail below, persuades us that
the respondents’ claims in this case must proceed initially in the administrative
forum and then through the judicial review scheme Congress established in § 78y.
We therefore conclude, consistent with three of our sister circuits, that the district
court lacked subject matter jurisdiction. See Tilton, et al. v. SEC, __ F.3d__, No.
15-2103, 2016 WL 3084795 (2d Cir. June 1, 2016); Jarkesy v. SEC, 803 F.3d 9(D.C. Cir. 2015); Bebo v. SEC, 799 F.3d 765 (7th Cir. 2015), cert. denied, 136 S.
Ct. 1500 (2016).3
A. Whether Congressional Intent to Preclude District Court Review of
SEC Administrative Proceedings Is “Fairly Discernible in the Statutory
Scheme”
Applying the test established in Thunder Basin, we first must decide whether
it is “fairly discernible” from the “text, structure, and purpose” of § 78y that
Congress intended this statute to provide the exclusive means for judicial review of
3
The decisions in Bebo and Jarkesy were unanimous. The Fourth Circuit is also
considering this jurisdictional issue. See Bennett v. SEC, No. 15-2584 (4th Cir. appeal docketed
Dec. 28, 2015).
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an SEC administrative action. Elgin, 132 S. Ct. at 2133 (internal quotation marks
omitted). We discern from the text of the statute that Congress sought to foreclose
district court review of administrative proceedings. See id.; Thunder Basin, 510
U.S. at 207-09.
Thunder Basin is particularly instructive. At issue there was 30 U.S.C.
§ 816(a), the statutory scheme Congress provided for reviewing decisions of the
Federal Mine Safety and Health Review Commission (the “Mine Safety
Commission”). Id. at 207-12. The Mine Safety Commission is authorized to
impose civil monetary penalties for, among other infractions, violations of the
regulations promulgated under the Mine Act. Id. at 204, 208. The petitioner,
Thunder Basin Coal Company (“Thunder Basin”), filed a lawsuit in federal district
court to challenge one such regulation, arguing among other points that requiring it
to undergo a statutory review process similar to the process set forth in § 78y
violated its rights under the Due Process Clause of the Fifth Amendment. Id. at
204-05. The Court held that the text and structure of the Mine Act demonstrated
Congress’s intent to preclude the petitioner’s challenge in federal district court. Id.
at 207-09.
As the District of Columbia Circuit recognized in Jarkesy, the text of the
Mine Act’s judicial review provisions at issue in Thunder Basin are “nearly
identical” to those governing SEC final orders at issue here. Jarkesy, 803 F.3d at
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16-17. Both schemes provide exclusive jurisdiction upon the filing of the record in
the appropriate court of appeals and grant broad authority to that court to affirm,
modify, enforce, or set aside a final agency order in whole or in part. Compare 15
U.S.C. § 78y(a)(1)-(3), with 30 U.S.C. § 816(a)(1). The Mine Act and the
Exchange Act both also circumscribe, in essentially the same manner, the appellate
court’s authority to consider new arguments, reject findings of fact, remand for
additional fact finding, or issue a stay. Compare 15 U.S.C. § 78y(a), with 30
U.S.C. § 816(a). We agree with Jarkesy that § 78y is materially indistinguishable
from § 816(a) and thus evinces Congressional intent to resolve challenges to
Commission orders first in the administrative forum and then on appeal to the
appropriate courts of appeal.
We find Elgin similarly helpful. In Elgin, the Supreme Court considered the
CSRA’s “comprehensive system for reviewing personnel action taken against
federal employees.” Elgin, 132 S. Ct. at 2130 (internal quotation marks omitted).
The CSRA set forth in “painstaking detail” the method for covered employees to
obtain review of adverse employment actions, first before the Merit Systems
Protection Board (“MSPB”) and then on appeal exclusively to the United States
Court of Appeals for the Federal Circuit. Id. at 2134; see also id. at 2130-31
(citing 5 U.S.C. §§ 7513(d), 7701(a)(1)-(2), 7703(b)(1); 28 U.S.C. § 1295(a)(9)).
The CSRA’s review provision applies to “[a]ny employee or applicant for
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employment adversely affected or aggrieved by a final order or decision of the
[MSPB].” 5 U.S.C. § 7703(a)(1). The Supreme Court held that given the
comprehensive and detailed statutory review scheme set forth in the CSRA, it was
“fairly discernible that Congress intended to deny [covered] employees an
additional avenue of review in district court.” Elgin, 132 S. Ct. at 2134.
Likewise, § 78y makes it clear that Congress intended to preclude parallel
federal district court litigation involving challenges to final Commission orders.
Although perhaps not painstaking, the detail in § 78y indicates that Congress
intended to deny aggrieved parties another avenue for review. Moreover, like the
CSRA, § 78y is comprehensive, covering all final Commission orders without
exception. We are thus convinced that Congress intended any challenge to a final
Commission order, even one framed as a constitutional challenge to the
administrative process itself, to receive judicial review under § 78y.
The Supreme Court’s decision in Free Enterprise Fund, which construed
§ 78y’s reach, does not require a contrary conclusion. There, the PCAOB began a
formal investigation into the auditing practices of an accounting firm. Free Enter.
Fund, 561 U.S. at 487. The firm and an associated nonprofit organization then
sued the PCAOB in federal district court, arguing that the PCAOB’s existence was
unconstitutional because, among other reasons, its members were not properly
appointed pursuant to the Appointments Clause. Id. The PCAOB responded that
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§ 78y governed the petitioner’s challenge, and therefore the case must be dismissed
for lack of jurisdiction. The Supreme Court disagreed. “Section 78y provides only
for judicial review of Commission action,” the Court reasoned, “and not every
[PCAOB] action is encapsulated in a final Commission order or rule.” Id. at 490.
In other words, although the text of § 78y covered all final Commission orders, it
did not cover all PCAOB action. Thus, the Supreme Court summarily rejected the
government’s argument that § 78y indicated Congressional intent to direct the
petitioner’s challenge into the administrative forum. Id. at 489.
Here, in contrast, the respondents do challenge Commission action—action
which, if allowed to proceed, necessarily will result in a final Commission order.
Section 78y provides that respondents must raise all objections to an order of the
Commission before it becomes final or risk waiving the objection on appeal. See
15 U.S.C. § 78y(c)(1). The respondents’ constitutional challenges are essentially
objections to forthcoming Commission orders; thus, they fall within the fairly
discernible scope of § 78y’s review procedures.
The respondents argue, and the district court concluded, that because the
Exchange Act contemplates that some SEC violations may be resolved in district
court rather than administrative proceedings, we cannot fairly discern
Congressional intent to foreclose the respondents’ challenges in this case. See Hill,
114 F. Supp. 3d at 1306 (“There can be no ‘fairly discernible’ Congressional intent
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to limit jurisdiction away from district courts when the text of the statute provides
the district court as a viable forum.”). We disagree.
Most of the provisions on which the respondents rely expressly grant the
government, not the respondent, the discretion to bring the action in the district
court. See, e.g., 15 U.S.C. §§ 78u(d), 78u-1, 78u-3 (the Commission); Id. §§ 78dd-
2(d), 78dd-3(d) (the Attorney General). We agree with the D.C. Circuit in Jarkesy
that “Congress granted the choice of forum to the [government], and that authority
could be for naught if respondents . . . could countermand the [government’s]
choice by filing a court action.” Jarkesy, 803 F.3d at 17; see also Tilton, 2016 WL
3084795, at *3 n.3 (“Congress’s decision to vest the SEC with a choice between
forums does not imply that the chosen forum should not be exclusive of the other.
To the contrary—without such exclusivity, the SEC’s statutory power to choose
would be illusory.”).
The remaining provisions the respondents highlight grant limited district
court jurisdiction in special circumstances, standing in sharp contrast to § 78y’s
broad scope. As two examples, § 78u-3(d) grants the federal district courts narrow
jurisdiction to review and, if appropriate, set aside, limit, or suspend a temporary
cease-and-desist order entered by the Commission, and § 78u-6(h)(1)(B)
authorizes a whistleblower to file a civil action in district court. See also 15 U.S.C.
§ 78bb(f)(2) (authorizing removal of securities class actions from state court to
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federal district court). That Congress carved out limited instances in which the
district courts have jurisdiction over actions under the Exchange Act does not
persuade us that Congress also intended for challenges to forthcoming Commission
orders in administrative enforcement actions to be heard in district court.
We also find unpersuasive the respondents’ reliance on Abbott Laboratories
v. Gardner and the Exchange Act’s savings clause, 15 U.S.C. § 78bb(a)(2). In
Abbott Laboratories, the Supreme Court held that a preenforcement challenge to
regulations promulgated under one section of the Federal Food, Drug, and
Cosmetic Act, as amended, 21 U.S.C. § 301 et seq. (“FDCA”), could be brought in
federal district court despite a statutory review procedure applicable to a different
section of the FDCA. Abbott Labs. v Gardner, 387 U.S. 136, 144-45 (1967),
abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). This
decision rested on the narrow nature of the review statute at issue, which provided
“special-review procedures,” id. at 142 (emphasis added), only for “certain
enumerated kinds of regulations, not encompassing those of the kind involved” in
that case, id. at 141 (footnote omitted). Based on this limiting language, the Court
concluded that the “special-review procedures” should be read narrowly; only
those special agency decisions covered by the statute must be resolved under the
review scheme. Id. at 144-145. And the FDCA’s savings clause—which stated
that “‘[t]he remedies provided for in this subsection shall be in addition to and not
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in substitution for any other remedies provided by law,’”—“buttressed” the Court’s
conclusion. Id. at 144 (quoting 5 U.S.C. § 701(f)(6) (1966)).
The respondents assert that, like the savings clause in Abbott Laboratories,
the savings clause in the Exchange Act, 15 U.S.C. § 78bb(a)(2), supports the
conclusion that Congress intended to preserve the district court’s authority to hear
constitutional challenges like the ones they raise here. It is true that the two
savings clauses are substantially similar. 4 But unlike the narrow review statute in
Abbott Laboratories, § 78y covers all timely-raised objections to a Commission’s
final order, without qualification. By its terms, § 78y includes the constitutional
objections respondents raise here. Abbott Laboratories is therefore inapposite.5
Finally, we are unpersuaded by Mr. Hill’s argument that had Congress
wanted to preclude judicial review of his claims in the district court, it could have
been clearer. Under the first step of our analysis, we do not require absolute
clarity. Instead, we simply ask whether Congress’s intent to preclude district court
4
Section 78bb(a)(2) states, “Except as provided in subsection (f), [which is inapplicable
here,] the rights and remedies provided by this chapter shall be in addition to any and all other
rights and remedies that may exist at law or in equity.”
5
McNary v. Haitian Refugee Center, Inc., 498 U.S. 479 (1991), also does not compel a
different conclusion. In McNary, the Supreme Court held that the limited judicial review
provision of § 210(e) of the Immigration and Nationality Act, U.S.C. § 1160(e), which applies
only to “‘a determination respecting an application for adjustment of status,’” did not preclude
“general collateral challenges to unconstitutional practices and policies used by the agency in
processing applications.” McNary, 498 U.S. at 492 (quoting 8 U.S.C. § 1160(e)(1)). The text of
the statute indicated that it was meant to cover a “single act rather than a group of decisions or a
practice or procedure.” Id. Conversely, as noted above, § 78y contemplates review of any
objection to a final Commission order, without limitation. See 15 U.S.C. § 78y(c)(1).
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review of the administrative proceeding is “fairly discernible in the statutory
scheme.” Thunder Basin, 510 U.S. at 207 (internal quotation marks omitted). We
conclude that it is.
B. Whether the Respondents’ Claims “Are of the Type Congress Intended
to Be Reviewed within the Statutory Structure”
We next turn to whether the specific claims the respondents raise “are of the
type Congress intended to be reviewed within this statutory structure.” Id. at 212.
To make this determination, we first consider whether “a finding of preclusion
could foreclose all meaningful judicial review” of the respondents’ claims. Id. at
212-13; see also Free Enter. Fund, 561 U.S. at 489. We agree with the Second
and Seventh Circuits that the first factor—meaningful judicial review—is “the
most critical thread in the case law.” Bebo, 799 F.3d at 774; accord Tilton, 2016
WL 3084795, at *4. Thus, we focus our inquiry there. We conclude without doubt
that the respondents’ claims can receive meaningful judicial review under § 78y;
thus, this first factor strongly favors the procedure the statute provides. We then
briefly consider the remaining two factors: whether the claims are “outside the
agency’s expertise” and “wholly collateral to a statute’s review provisions.”
Thunder Basin, 510 U.S. at 212 (internal quotation marks omitted). Although
these two factors are less conclusive, neither of them convinces us that Congress
intended to exempt from the statutory review scheme the type of claims
respondents raise.
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1. Availability of Meaningful Judicial Review
The respondents argue that § 78y fails to offer meaningful judicial review of
their claims. Their primary contention is that § 78y only comes into play after the
allegedly unlawful administrative process has run its course, at which time they
will have suffered the very injury they seek to avoid, and no amount of
postdeprivation relief can remedy it. Obviously, a court cannot enjoin a process
that has already been completed. Thus, the argument goes, because § 78y cannot
cure the injury they will suffer—enduring an unconstitutional administrative
process—the respondents are entitled to bring their claims in the district court.
The respondents’ argument fails at the outset. Enduring an unwanted
administrative process, even at great cost, does not amount to an irreparable injury
on its own. See FTC v. Standard Oil Co. of Cal., 449 U.S. 232, 244 (1980)
(holding that the substantial burden of defending oneself in an unlawful
administrative proceeding does not constitute irreparable injury); see also Bebo,
799 F.3d at 775 (“Every person hoping to enjoin an ongoing administrative
proceeding could make this argument, yet courts consistently require plaintiffs to
use the administrative review schemes established by Congress.”).
The respondents do not contest this point. They instead assert that the
administrative process here is not just unlawful—as the petitioner in Standard Oil
had contended—but unconstitutional. We fail to see what difference that makes
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here. Whether an injury has constitutional dimensions is not the linchpin in
determining its capacity for meaningful judicial review. See Thunder Basin, 510
U.S. at 213-215. In Thunder Basin, the Supreme Court held that the petitioner
could obtain meaningful judicial review through the administrative process, even
though the petitioner challenged as unconstitutional that very process itself. Id. at
215. At issue was a provision of the Mine Act granting “‘[a] representative of the
[mine] operator and a representative authorized by his miners . . . an opportunity to
accompany the Secretary [of Labor] . . . during the physical inspection of any coal
or other mine.’” Id. at 203 (quoting 30 U.S.C. § 813(f)). The representatives were
also entitled to “certain health and safety information” and could “promote health
and safety enforcement.” Id. A Mine Act regulation then authorized the miners to
designate “‘[a]ny person or organization’” to serve as their representative to
participate in the “walk-around” physical inspection when it occurs. Id. (quoting
30 C.F.R. § 40.1(b)(1)). A related regulation required that the mine post the
names, addresses, and telephone numbers of the designees. Id. at 203-204 (citing
30 C.F.R. § 40.4).
The miners at Thunder Basin designated employees of their union to
represent them; Thunder Basin believed this designation violated collective-
bargaining principles and its right to exclude union organizers from the property.
Id. at 204. Thunder Basin thus objected to posting the names of the designees. Id.23
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at 204-05. Thunder Basin apparently could have complied with the posting
regulation and then sought review of the regulation. See id. at 221 (Scalia, J.,
concurring in part and concurring in the judgment). Or it could have refused to
comply, begun to incur daily penalties, and meanwhile challenged the regulation
through the statutory review process. Id. at 217-18 (majority opinion). Instead,
Thunder Basin filed a lawsuit in federal district court raising its collective-
bargaining arguments and adding a claim that requiring it to challenge the
regulation through the statutory review process would violate due process. Id. at
205.
The Supreme Court held that even if the claims could not be addressed by
the agency, the “petitioner’s statutory and constitutional claims . . . [could] be
meaningfully addressed in the Court of Appeals” under 30 U.S.C. § 816(a). Id. at
215. The Court rejected the argument that due process required initial review in
the district court because “neither compliance with, nor continued violation of, the
statute [would] subject [Thunder Basin] to a serious prehearing deprivation.” Id. at
216. In particular, the Court determined that the alleged harm was “entirely
hypothetical,” in part because the designees would not receive advance notice of
the physical inspection, and thus the nonemployee union representatives—
individuals who were unlikely to be on site when the unannounced inspection
occurred—were unlikely to be present to exercise walk-around rights. Id. at 217.
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And to the extent the petitioner would suffer any prehearing deprivation, the
petitioner failed to “ma[ke] a colorable showing that full postdeprivation relief
could not be obtained.” See id. at 213.
Likewise, the respondents here have failed to show they will suffer any
serious deprivation that the court of appeals cannot remedy under § 78y. For one
thing, the Commission might decide that the respondents violated no securities
laws and thus grant the SEC no relief. But even if the Commission imposes
sanctions in its final order, the respondents will have two opportunities to obtain a
stay of the Commission’s final order pending judicial review, once before the
Commission, 17 C.F.R. § 201.401, and a second time before the court of appeals,
15 U.S.C. § 78y(c)(2). It is therefore entirely possible the respondents will suffer
no deprivation before receiving judicial review. Like the petitioner in Thunder
Basin, the respondents’ alleged pre-review injury is speculative at best. Moreover,
even if the respondents are unable to obtain a stay pending judicial review, they
have made no showing that full relief cannot be obtained after judicial review. To
the contrary, § 78y grants the court of appeals the power to vacate a Commission
order in whole, relieving the respondents of any liability. 15 U.S.C. § 78y(a)(3).
This case simply does not present a situation where the respondents are likely to
suffer irreparable injury while awaiting judicial review. See Thunder Basin, 510
U.S. at 218; Tilton, 2016 WL 3084795, at *6 (“Subsequent judicial review cannot
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restore [financial and emotional resources of litigation], but it can vacate the
resulting judgment and remand for a new proceeding. That post-proceeding relief,
although imperfect, suffices to vindicate the litigant’s constitutional claim.”).
The respondents’ reliance on Mathews v. Eldridge, 424 U.S. 319 (1976), and
its progeny is misplaced. In Eldridge, the Supreme Court held that a recipient of
Social Security disability benefits was permitted to raise in federal district court a
due process challenge to the administrative exhaustion requirements under 42
U.S.C. § 405(g)—providing judicial review for adverse social security benefits
determinations—in part because the plaintiff otherwise would suffer irreparable
injury. Id. at 331-32. The Court reached its conclusion in Eldridge based not on
the constitutional nature of the plaintiff’s claims but instead on his “physical
condition and dependency upon the disability benefits.” Id. at 331. The Court
observed that an “erroneous termination would damage [the plaintiff] in a way not
recompensable through retroactive payments.” Id.; accord Bowen v. City of N.Y.,
476 U.S. 467, 483-84 (1986) (crediting the district court’s finding that disabled
claimants, like the plaintiff in Eldridge, would suffer irreparable injury not only
because they were denied the benefits they sought, but also because they would
experience the “ordeal of having to go through the administrative appeal process[,]
[which] may trigger a severe medical setback,” and thus “[i]nterim benefits
[would] not adequately protect [the] plaintiffs from this harm” (internal quotation
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marks omitted)); Kreschollek v. S. Stevedoring Co., 78 F.3d 868, 873-75 (3d Cir.
1996) (concluding that despite Congress’s fairly discernible intent to preclude
district court jurisdiction over ordinary challenges to a worker’s compensation
decision, the administrative process was insufficient to provide full relief to a
person whose benefits had been terminated). The respondents have made no
showing that they will suffer a similar irreparable injury here.
Contrary to their assertions, the respondents are not in the type of precarious
position the Supreme Court found unacceptable in Free Enterprise Fund. 561 U.S.
at 489-90. There, the petitioners sought to bring a constitutional challenge to the
existence of the PCAOB, which, among other tasks, “promulgates auditing and
ethics standards, performs routine inspections of all accounting firms, demands
documents and testimony, and initiates formal investigations and disciplinary
proceedings.” Id. at 485. The government argued that rather than bring a
challenge in federal district court, the petitioners should simply ignore a request by
the PCAOB, voluntarily “incur a sanction (such as a sizeable fine),” and then
challenge that sanction in the administrative forum. Id. at 490. The Court held
that this process did not offer a “meaningful avenue of relief.” Id. at 490-91(internal quotation marks omitted). Plaintiffs should not be required “to bet the
farm by taking the violative action before testing the validity of the law.” Id. at
490 (alteration adopted and internal quotation marks omitted).
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Unlike the petitioners in Free Enterprise Fund, however, the respondents
here need not bet the farm to test the constitutionality of the ALJs’ appointment
process. On the contrary, the respondents have already taken the actions that
allegedly violated securities laws. See Jarkesy, 803 F.3d at 20 (“Jarkesy is already
properly before the Commission by virtue of his alleged violations of those laws.
Indeed, the existence of the enforcement proceedings gave rise to Jarkesy’s
challenges.”); Bebo, 799 F.3d at 774 (observing that the “key factor in Free
Enterprise Fund that rendered § 78y inadequate is missing” where the plaintiff
does not “need to risk incurring a sanction voluntarily just to bring her
constitutional challenges before a court of competent jurisdiction”); McNary, 498
U.S. at 496-97 (holding that because most undocumented aliens would need to
“voluntarily surrender themselves for deportation” in order to ensure judicial
review through the statutory review process, their claims escaped meaningful
judicial review). In other words, to challenge the constitutional adequacy of the
appointments of the SEC ALJs before the Commission, as opposed to the district
court, the respondents must take no additional risks.
We are also unmoved by the Gray respondents’ contention that the timing of
their complaint in federal court—before the Commission initiated an
administrative enforcement proceeding—grants them license to bypass the review
procedures set out in § 78y. We rejected a similar argument in Doe v. FAA. 432
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F.3d 1259. There, aircraft mechanics received certification from a school that,
according to the Federal Aviation Administration (“FAA”), had fraudulently
examined and certified some of its applicants. Id. at 1260. Because the FAA
could not determine which mechanics had received fraudulent certificates, the
agency decided to reexamine all mechanics who received their certificates from the
school during the relevant time. Id. The respondents filed a federal lawsuit,
seeking an injunction instructing the FAA how to reexamine the mechanics. Id.We found meritless the mechanics’ argument that the administrative review
process was inapplicable because the plaintiffs filed their lawsuit before the FAA
took any certification action. Id. at 1262-63. “The mechanics,” we concluded,
“simply cannot avoid the statutorily established administrative-review process by
rushing to the federal courthouse for an injunction preventing the very action that
would set the administrative-review process in motion.” Id. at 1263; see also
Thunder Basin, 510 U.S. at 208, 216 (recognizing that the “[p]etitioner’s claims
are ‘pre-enforcement’ only because the company sued before a citation was issued”
and noting that the statutory judicial review procedure “does not distinguish
between preenforcement and postenforcement challenges”). Similarly, here, it
makes no difference that the Gray respondents filed their complaint in the face of
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an impending, rather than extant, enforcement action.6 The critical fact is that the
Gray respondents can seek full postdeprivation relief under § 78y.
Finally, we reject the Gray respondents’ contention that their claims will
escape meaningful judicial review because of the “paltry discovery” available to
them in the administrative forum. Gray Respondents’ Br. at 26. On this point,
Elgin is instructive. The petitioners in Elgin were former federal competitive
service employees who wished to challenge in federal court the constitutionality of
a law under which they were fired for failing to register for the Selective Service.
Elgin, 132 S. Ct. at 2131. They asserted that the agency could not develop a
sufficient factual record because it lacked the authority to decide the legal question
6
Unlike the Gray respondents, we do not read the conclusions drawn in Bebo, Jarkesy,
and Tilton as resting on the timing of the respondents’ federal lawsuit. In Bebo, the court simply
stressed that as a “respondent in a pending enforcement proceeding, [the plaintiff] does not need
to risk incurring a sanction voluntarily just to bring her constitutional challenges before a court
of competent jurisdiction.” Bebo, 799 F.3d at 774. As explained above, the same is true for a
person who faces an impending enforcement proceeding. The courts in Jarkesy and Tilton
tangentially addressed the timing of the plaintiff’s complaint when they considered the “wholly
collateral” factor. But in Jarkesy, the court merely theorized in dicta that “[t]he result might be
different if a constitutional challenge were filed in court before the initiation of any
administrative proceeding (and the plaintiff could establish standing to bring the judicial
action).” Jarkesy, 803 F.3d at 23. Likewise, in Tilton, the court simply observed that unlike the
Appointments Clause claim in Free Enterprise, which “was not moored to any proceeding that
would provide for an administrative adjudication and subsequent judicial review,” the analogous
claim in Tilton targeted an aspect of an ongoing proceeding. Tilton, 2016 WL 3084795, at *8.
We are confident that the outcome would not have been different in Jarkesy or Tilton had the
Appointments Clause claim challenged an aspect of a specific, forthcoming proceeding. In any
event, we disagree with Jarkesy and Tilton to the extent they suggest that a district court might
have jurisdiction to hear a constitutional challenge simply because it was filed before an
impending administrative enforcement action.
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and that the appellate court lacked any factfinding capabilities whatsoever. Id. at
2138. The Supreme Court was unpersuaded. “Even without factfinding
capabilities,” the Court reasoned, “the [appellate court] may take judicial notice of
facts relevant to the constitutional question.” Id. Moreover, the CSRA “empowers
the [agency] to take evidence and find facts for [appellate] review.” Id. As the
Court explained, it made no difference if the agency lacked the authority to rule on
the legal question because there was “nothing extraordinary in a statutory scheme
that vests reviewable factfinding authority in a non-Article III entity that has
jurisdiction over an action but cannot finally decide the legal question to which the
facts pertain.” Id.We are equally confident that the respondents here can develop a sufficient
factual record for meaningful appellate review under § 78y of their constitutional
claims. The administrative process includes adequate tools for the Gray
respondents to draw out the facts necessary to mount their constitutional challenge
relating to the ALJs’ status as inferior officers. The Gray respondents may call
witnesses to testify, for example, and if a witness is unavailable to testify, the
respondents may seek leave to take that witness’s deposition at the Commission’s
discretion. See 17 C.F.R. §§ 201.233, 201.234. The respondents may also request
that the ALJ issue subpoenas when appropriate. See id. § 201.232. These tools,
although less robust than those provided by the Federal Rules of Civil Procedure,
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do not leave the Gray respondents without a meaningful avenue to develop the
record.
Moreover, to the extent the Commission fails to develop a sufficient factual
record, the reviewing court not only may take judicial notice of facts relevant to the
constitutional questions, see Fed. R. Evid. 201, but under § 78y(a)(5) it may also
remand to the Commission for further factfinding. Section 78y(a)(5) provides that
if the appellate court determines, on a party’s motion, that “additional evidence is
material and that there was reasonable ground for failure to adduce it before the
Commission, the court may remand the case to the Commission for further
proceedings, in whatever manner and on whatever conditions the court considers
appropriate.” 15 U.S.C. § 78y(a)(5). The combined effect of these mechanisms
adequately allows for the development of a sufficient factual record. In sum, we
are without doubt that under § 78y the respondents can receive meaningful judicial
review of their claims.
2. The “Wholly Collateral” and Agency Expertise Factors
The remaining two factors do not cut strongly either way and thus do not
persuade us that the respondents claims fall outside the scope of § 78y’s review
scheme. See Tilton, 2016 WL 3084795, at *4 (“[A]lthough [the wholly collateral
and agency expertise factors] present closer questions in this case, they do not
persuasively demonstrate that the Appointments Clause claim falls outside the
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scope of the SEC’s overarching scheme.”). We first consider whether “agency
expertise [could] be brought to bear on the . . . questions presented.” Thunder
Basin, 510 U.S. at 215 (internal quotation marks omitted). Elgin tells us that it can
here. See Elgin, 132 S. Ct. at 2140. In Elgin, the Supreme Court held that, if the
agency can decide the merits of an underlying substantive claim and thus “obviate
the need to address the constitutional challenge,” its expertise sufficiently “could
be brought to bear” on the constitutional issues. Id. (internal quotation marks
omitted); see also Thunder Basin, 510 U.S. at 215 (holding that even if the agency
is powerless to address the constitutional question, so long as the claims “can be
meaningfully addressed in the Court of Appeals,” the Court will not disregard the
fairly discernible intent of Congress).
As in Elgin, here the Commission might decide that the SEC’s substantive
claims are meritless and thus would have no need to reach the constitutional
claims. See Tilton, 2016 WL 3084795, at *10 (“[T]he Commission could rule that
the appellants did not violate the Investment Advisers Act, in which case the
constitutional question would become moot.”). 7 We are thus satisfied that the
7
In his dissenting opinion in Tilton, Judge Droney argued that unlike the constitutional
claim at issue in Elgin, the Appointments Clause challenge is similar to a jurisdictional one, and
thus should precede a decision on the merits. Tilton, 2016 WL 3084795, at *15 (Droney, J.,
dissenting). In other words, he suggests that the ALJ cannot simply punt on the Article II issue
and go straight to the merits of the alleged securities law violations. Even if this were true, we
don’t think it matters. Perhaps the ALJ cannot obviate the need to decide the Article II question,
but she can obviate the need for a court of appeals to decide it. Indeed, if a respondent wins on
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Commission’s expertise could be brought to bear in this way, even if its expertise
could offer no added benefit to the resolution of the constitutional claims
themselves. Thus, it is of no moment that respondents’ Article II claims
themselves are outside the agency’s expertise. See Free Enter. Fund, 561 U.S. at
491 (holding that an Appointments Clause challenge to the PCAOB, which
challenge was materially similar to the constitutional challenges raised here, did
not require the type of “fact-bound inquir[y]” that called for agency expertise).8 In
short, the agency expertise factor gives us “no reason to conclude that Congress
intended to exempt [the respondents’] claims from exclusive review before” the
Commission and the appropriate court of appeals. Elgin, 132 S. Ct. at 2140.
Nor does the final factor—whether the respondents’ claims are wholly
collateral to the statute’s review provisions—tip the scales in favor of judicial
review outside of the procedures set forth in § 78y. As the court in Bebo
the merits before the Commission, the respondent has not suffered an adverse decision entitling
him to appellate review. See 15 U.S.C. § 78y(a)(1) (authorizing only “aggrieved” persons to
appeal an adverse order of the Commission). This point “dovetails with our analysis of the
availability of meaningful judicial review.” Tilton, 2016 WL 3084795, at *10 (majority op.) We
agree with the majority opinion in Tilton that “a favorable Commission order, including one on
statutory grounds, would provide an acceptable resolution of the Appointments claim and
obviate any need for judicial review.” Id.8
We note that during oral argument in this case, the SEC conceded that Free Enterprise
Fund compels the conclusion that the respondents’ Appointments Clause challenge is outside the
Commission’s expertise.
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recognized, there are several ways to understand this factor. Bebo, 799 F.3d at
773; see Tilton, 2016 WL 3084795, at *8. We could simply compare the merits of
the respondents’ constitutional claims to the substance of the charges against them.
See Eldridge, 424 U.S. at 330 (concluding that the petitioner’s assertion that the
Due Process Clause entitled him to a hearing before the termination of his
disability benefits was “entirely collateral to his substantive claim of entitlement”).
This approach arguably supports the respondents’ position: even if the respondents
were to prevail on their constitutional claims challenging the status of ALJs, they
could still face a civil enforcement action in federal district court. See Gupta v.
SEC, 796 F. Supp. 2d 503, 513 (S.D.N.Y. 2011) (“These allegations . . . would
state a claim even if [the respondent] were entirely guilty of the charges made
against him in the OIP.”). In this sense, the respondents’ claims are collateral to
the SEC’s substantive allegations.
We could focus instead on whether the respondents’ claims are “wholly
collateral to [the] statute’s review provisions.” Elgin, 132 S. Ct. at 2136 (emphasis
added) (internal quotation marks omitted). The Court took this approach in Elgin,
where federal employees did not dispute the merits of the charges against them but
instead challenged their removal by attacking the statute under which they were
terminated. Id. at 2139-40. The Court observed that the constitutional claims were
“the vehicle by which they [sought] to reverse the removal decisions, to return to
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federal employment, and to receive the compensation they would have earned but
for the adverse employment action.” Id. Their “challenge to [a] CSRA-covered
employment action brought by CSRA-covered employees requesting relief that the
CSRA routinely affords,” therefore, was not wholly collateral to the CSRA review
scheme. Id. at 2140.
Viewed through this lens, it is less clear whether the respondents’
constitutional claims are wholly collateral to the review procedure set forth in
§ 78y. The respondents attack the constitutionality of the ALJs and the
administrative process as a vehicle to challenge the SEC’s decision to bring the
case before the Commission, suggesting that their constitutional challenges are not
wholly collateral to the SEC’s review provisions. But the respondents’ challenge
is not a means to avoid liability altogether; as explained above, even if they prevail
on their constitutional claims, they could face a civil enforcement action in federal
district court. Thus, their constitutional arguments are not a “vehicle by which
they seek” to prevail on the merits. In any event, whether we characterize the
respondents’ claims as wholly collateral, this factor does not convince us that
Congress intended to grant the respondents a license to bypass § 78y in the face of
our conclusion that the statute guarantees meaningful judicial review. See Thunder
Basin, 510 U.S. at 215 (deciding the jurisdictional issue without concluding that
the claims were wholly collateral). We agree with the Seventh Circuit that “it is
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‘fairly discernible’ that Congress intended [the respondents] to proceed exclusively
through the statutory review scheme established by § 78y because that scheme
provides for meaningful judicial review in ‘an Article III court fully competent to
adjudicate petitioners’ claims.’” Bebo, 799 F.3d at 774 (quoting Elgin, 132 S. Ct.
at 2137)). We thus conclude that the respondents’ claims are of the type Congress
intended § 78y to govern.
III. CONCLUSION
Congress set forth a detailed process for exclusive judicial review of final
Commission orders in the federal courts of appeals. 15 U.S.C. § 78y. From the
text of the statute, we fairly discern Congress’s general intent to channel all
objections to a final Commission order—including challenges to the
constitutionality of the SEC ALJs or the administrative process itself—into the
administrative forum and to preclude parallel federal district court litigation. We
find no indication that the respondents’ constitutional challenges are outside the
type of claims that Congress intended to be reviewed within this statutory scheme.
Accordingly, the district court erred in exercising jurisdiction. We vacate the
district court’s preliminary injunction orders and remand with instructions to
dismiss each case for lack of jurisdiction.
VACATED AND REMANDED WITH INSTRUCTIONS TO DISMISS
FOR LACK OF JURISDICTION.
37